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Placing a priority on loyalty

Placing a priority on loyalty

JClient loyalty is one of the hot and trendy topics that marketing people like to bandy about. The appeal may be because client loyalty is almost an end in itself. If a company can achieve and maintain a high degree of client loyalty, then it will probably be very successful.

Another important element is the idea that it costs more to secure a new customer than retain an existing one. This is probably true in most cases.

However, there is no evidence that the big gap in costs often quoted to make the point is true. Various companies and groupings have taken a leap of faith with loyalty. To meet this need, consultants have set up shop as loyalty advisers, though experts do not tend to exist in new fields. In some firms you even see persons with the title of `client loyalty manager' or similar. A major problem with loyalty is lack of measurement, standards and few empirical studies.

There exists a kind of warm and fuzzy feeling about loyalty. However, many IT resellers would argue that actual client loyalty does not really exist. They would probably say that most of their customers do not deal exclusively with them and that price is the major influencing factor.

Many might say that, all things being equal, they get the order. There may be a degree of preference or favour that exists, but nowhere near the commitment that is suggested by loyalty proponents.

The vast majority of so-called loyalty programs like Fly Buys are not actually loyalty programs at all. They really reward you for shopping or buying from particular stores or other outlets.

However, this does not constitute loyalty. It is more of a bribe to behave in a specific way.

There is no inherent value or reason underpinning the behaviour. If the bribe is removed, behaviour changes.

Loyalty exists, but is a difficult variable to understand and measure. Research conducted by the Marketing Science Centre at the University of South Australia suggests that loyalty remains relatively constant.

One of my clients, an Internet services provider, once claimed they had high customer loyalty, due to a lower `churn' or loss rate on access clients than the apparent industry norm.

However, on further assessment, it was apparent that the commendable level of customer retention was not so high when evaluated against active account usage and due in part to the fact that many clients did not have much of a choice about ISP in certain regional areas.

The ISP's true customer loyalty cannot be accurately determined.

A change could encourage a client to switch to a competitor, and this would vary between individuals. It could be as simple as being offered a better price, or receiving poorer service.

Most loyalty programs have had limited success in increasing revenue from existing clients, or in reducing client loss.

The reason for this is that they are based on a shaky platform. I pose a question to readers. Loyalty programs appeal to what type of client or person? The answer is loyal ones - the ones that are more likely to buy from you and stick with you. These clients are getting a reward for doing what they would largely do in any case. The less-attached clients are not as interested in being bribed. They have a greater propensity to consider other offers.

Client loss occurs despite loyalty and reward programs. Telstra uses various means to retain our loyalty. However, the net flow of customers has been away from Telstra.

The dynamic nature of the IT industry and the type of (inconsistent) approaches adopted by resellers might mean that they have a high proportion of vulnerable clients in a typical user base.

The key opportunity for resellers is to identify and understand the clients who are (more) vulnerable, and then take appropriate action to address them.

Acting on the vulnerable clients would usually be much cheaper and more effective than executing blanket loyalty and relationship management strategies to all clients.

This means being a bit smarter than offering gifts and free lunches to all clients, or worse, just the good ones.

Rather than demographic or other descriptive profiling information, properly designed customer surveys and probability methods can provide the best view of who is vulnerable in your client base. This is where your `loyalty' efforts ought to be applied.

John Goslino is the principal of Professional Marketing Assistance. Reach him at bongos@camtech.net.au


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